{"id":779546,"date":"2024-07-03T09:50:00","date_gmt":"2024-07-03T07:50:00","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=779546"},"modified":"2024-07-03T09:50:40","modified_gmt":"2024-07-03T07:50:40","slug":"two-well-known-south-african-companies-in-deep-trouble","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/business\/779546\/two-well-known-south-african-companies-in-deep-trouble\/","title":{"rendered":"Two well-known South African companies in deep trouble"},"content":{"rendered":"\n

Two well-known South African companies, Ellies and West Pack, are in business rescue and face an uncertain future.<\/p>\n\n\n\n

The two companies have been casualties of a changing business environment, poor economic conditions, and poor business decisions.<\/p>\n\n\n\n

Many businesses are struggling in the South African economy. Between January and April of this year, 513 companies have been liquidated.<\/p>\n\n\n\n

Even some of South Africa’s largest companies, like Pick n Pay and DStv-owner MultiChoice, are facing headwinds.<\/p>\n\n\n\n

Pick n Pay\u2019s latest financial results revealed that it swung from a R1.17 billion profit to a R3.2 billion net loss over the last year.<\/p>\n\n\n\n

For the first time in Pick n Pay\u2019s listed history, it has become technically insolvent, with total liabilities exceeding total assets by R183 million.<\/p>\n\n\n\n

Even more concerning was that the retailer breached all of its debt covenants. It now had to launch a rights offer and sell part of Boxer to reduce its debt.<\/p>\n\n\n\n

MultiChoice unveiled equally atrocious results last month. Over the last financial year, the company recorded a R4.1 billion loss and became technically insolvent.<\/p>\n\n\n\n

MultiChoice suffered a 9% decline in active subscribers, mainly due to a 13% decline in the Rest of Africa business and a 5% decline in South Africa.<\/p>\n\n\n\n

The broadcaster\u2019s financial mess was self-inflicted. It lost billions through poor acquisitions and bad business decisions hurt its DStv subscriber base.<\/p>\n\n\n\n

Despite its challenging position, MultiChoice\u2019s problems can all be solved through the planned Canal+ acquisition.<\/p>\n\n\n\n

Ellies and West Pack are not so lucky. They face an uncertain future as it is not clear how they will be saved.<\/p>\n\n\n\n

While their pain is partly caused by the South African business environment, most of their problems are self-inflicted.<\/p>\n\n\n\n

Below is an overview of what went wrong at these companies and their plans to turn things around.<\/p>\n\n\n\n

Ellies liquidation<\/strong><\/h2>\n\n\n\n
\"\"<\/a><\/figure>\n\n\n\n

Ellies has gone through business rescue proceedings, with the practitioners determining that the company cannot be saved and recommending liquidation.<\/p>\n\n\n\n

This is a sad end to the once-powerful electronics brand founded in 1979 by entrepreneur Ellie Salkow.<\/p>\n\n\n\n

Under Salkow, Ellies grew rapidly and became a favourite among investors, reaching a peak share price in 2013.<\/p>\n\n\n\n

However, the company misjudged the market. It bet big on digital TV migration and pumped money into satellite dishes and related equipment.<\/p>\n\n\n\n

When digital TV was not implemented according to the government\u2019s timelines, and DStv started to lose its shine, Ellies suffered.<\/p>\n\n\n\n

It tried to pivot into alternative energy products, but poor execution prevented it from taking advantage of the strong demand for these products.<\/p>\n\n\n\n

After multi-year losses, Ellies enter into voluntary business rescue proceedings on 31 January 2024.<\/p>\n\n\n\n

Only a few months later, in April 2024, its business rescue practitioner concluded that there was no reasonable prospect of the company being rescued and decided to place it into liquidation.<\/p>\n\n\n\n

The company posted a R106.5 million loss for the six months that ended 31 October 2023, which was 205.2% worse than the R34.9 million loss in the prior period.<\/p>\n\n\n\n

Ellies Electronics has clarified that it will continue to trade despite the liquidation of its parent company, Ellies Holdings.<\/p>\n\n\n\n

Ellies Electronics is the main operating subsidiary of the Ellies Group and contains all of the group\u2019s cash-generating business units.<\/p>\n\n\n\n

\u201cIts only assets are shares in its operating subsidiary companies\u201d, explained John Evans, business rescue practitioner for both Ellies Holdings and Ellies Electronics.<\/p>\n\n\n\n

Ellies Electronics CEO Shaun Prithivirajh said he has received offers from third parties who wish to acquire the operating divisions.<\/p>\n\n\n\n

\u201cThe fact that Ellies Electronics continues to trade is an important factor for all stakeholders to note,\u201d he said.<\/p>\n\n\n\n

There is, therefore, still hope for the Ellies brand to live on in South Africa.<\/p>\n\n\n\n

West Pack in business rescue<\/strong><\/h2>\n\n\n\n
\"\"<\/a><\/figure>\n\n\n\n

West Pack is the most recent prominent South African company to enter into business rescue proceedings.<\/p>\n\n\n\n

The retailer announced that its board of directors adopted a resolution on 9 May 2024 to voluntarily commence business rescue proceedings.<\/p>\n\n\n\n

The retail group comprises numerous companies, including West Pack Lifestyle, West Pack Lifestyle Distribution Centre, West Pack Franchise, Petzone, and Petzone Franchise.<\/p>\n\n\n\n

The company cited several reasons for its financial distress. Notably, it cited its rapid growth, which led to cash flow problems.<\/p>\n\n\n\n

West Pack said it opened stores too quickly and needed to stock them with inventory, which used up its cash reserves and made it difficult to repay debts.<\/p>\n\n\n\n

They weren\u2019t buying the right products to meet customer demand, which led to unsold inventory. Cash flow limitations prevented them from correcting this issue.<\/p>\n\n\n\n

It also pointed to South Africa\u2019s struggling economy and load-shedding, saying these factors further hurt the business. They caused sales to decline and pushed the company into a loss.<\/p>\n\n\n\n

Despite these challenges, West Pack said there was a reasonable prospect of the company being saved. It is now executing initiatives to restructure the business and drive its turnaround.<\/p>\n\n\n\n

It is exploring offers to acquire some of West Pack\u2019s assets or the full business, considering a corporate finance transaction, and selling non-core assets.<\/p>\n\n\n\n

It is further reducing overhead expenses and is restructuring the business to achieve an ideal retail footprint with market-aligned rental rates.<\/p>\n\n\n\n

\u201cBy implementing the above initiatives, there will be a reasonable prospect of rescuing the company,\u201d it said.<\/p>\n\n\n\n

\n\n\n\n

Read: One step forward, two steps back for South Africa<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Two companies which are household names in South Africa are in business rescue and face an uncertain future.<\/p>\n","protected":false},"author":10,"featured_media":744549,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9872],"tags":[557,4067,20130],"class_list":["post-779546","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","tag-ellies","tag-pick-n-pay","tag-west-pack"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/779546","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/10"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=779546"}],"version-history":[{"count":3,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/779546\/revisions"}],"predecessor-version":[{"id":780320,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/779546\/revisions\/780320"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/744549"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=779546"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=779546"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=779546"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}